Document summaries for the week of March 12, 2018
Proposed regs. would amend definition of short-term insurance
The IRS, with the Departments of Labor and Health and Human Services, issued proposed regulations that would amend the definition of short-term, limited-duration insurance to allow a maximum coverage period of less than 12 months and revise required notices with respect to minimum essential coverage under Sec. 5000A. REG-133491-17 (3/12/18).
Covered entity defined for fee on health insurers
Final regulations provide rules defining a covered entity for purposes of the fee on health insurance providers imposed by Section 9010 of the Patient Protection and Affordable Care Act, P.L. 111-148. T.D. 9830 (3/12/18).
IRS issues monthly corporate yield curve and segment rates
The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2). In addition, the IRS provided guidance as to the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2018-22 (3/15/18).
IRS modifies procedures for issuing opinion and advisory letters for certain employee benefit plans
The IRS issued a revenue procedure modifying IRS procedures for issuing opinion and advisory letters for pre-approved master and prototype and volume submitter plans as provided in Rev. Proc. 2015-36. In particular, among other changes, the revenue procedure modifies Sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 to allow pre-approved defined benefit plans containing a cash balance formula to provide for the actual rate of return on plan assets as the rate used to determine interest credits. Rev. Proc. 2018-21 (3/16/18).
Biologist can deduct some expenses of studying mountain lions
The Tax Court held that a biologist who specialized in the ecology and predatory habits of mountain lions adequately documented several of the expenses he incurred in doing field research near the United States–Mexico border. Thus, these expenses were deductible as business expenses. However, the court denied a deduction of almost $13,000 of vehicle costs because the taxpayer maintained no contemporaneous mileage log or similar records of his vehicle costs. Thompson, T.C. Summ. 2018-11 (3/12/18).
Taxpayer not entitled to American opportunity tax credit where she failed to document education-related expenses
The Tax Court held that a taxpayer who enrolled in five classes at San Francisco State University in 2013 but then had to withdraw because of a family medical emergency was not entitled to the American opportunity tax credit that she claimed on her 2013 tax return. The court concluded that the taxpayer failed to document qualified tuition and related expenses for the credit. Harris, T.C. Summ. 2018-12 (3/13/18).
Short sale of personal residence converted to rental property resulted in neither gain nor loss
The Tax Court held that a transaction involving the short sale of a home that a couple bought with nonrecourse debt and that the couple occupied as their personal residence, followed by the bank forgiving the debt used to purchase the home, was part of one sale or exchange transaction; and the amount the couple realized included the discharged debt. The court further held that the amount realized was greater than the couple’s loss basis in the property under Regs. Sec. 1.165-9(b)(2), but less than the couple’s gain basis in the property and, because the property was sold for an amount between those bases, there was neither a gain nor a loss on the sale. In addition, the couple were not liable for the accuracy-related penalty. Simonsen, 150 T.C. No. 8 (3/14/18).
Tax services corporation must include client fees in gross income in year received
The Tax Court held that a C corporation operating a tax preparation business had to include certain client fees, which were received under contracts involving a condition subsequent, in gross income in the year the payments were received because there was no restriction or limitation on the disposition of the fees. The court also held that the corporation could not deduct certain expenses paid on behalf of some of its clients and could not deduct a contingent liability relating to a lawsuit against its sole owner and a related corporation because the company failed to prove it would have any liability for the lawsuit. RJ Channels, Inc., T.C. Memo. 2018-27 (3/14/18).
Sale of renovated mansion results in capital loss; interest on renovation loans must be capitalized
The Tax Court held that a mansion renovated by a couple and sold at a loss was never held out for rent, nor was it ever rented, and thus the loss was a capital, not ordinary, loss. The court also held that the improvements to the mansion were subject to the uniform capitalization rules and, as a result, the interest expense paid on the renovation loans had to be capitalized. Finally, the couple were also liable for penalties. Keefe, T.C. Memo. 2018-28 (3/15/18).
Chief Counsel’s Office consulted on Sec. 956 and the calculation of U.S. property held by a CFC
The Office of Chief Counsel was asked whether, in calculating the amount of U.S. property held by a controlled foreign corporation (CFC) under Sec. 956(a), the amount of an obligation of a U.S. person held by the CFC (as determined under Sec. 956(c)(1)(C)) may be reduced by obligations of the CFC held by a different U.S. person if that person is a member of the same U.S. consolidated group under Sec. 1501. The Chief Counsel’s Office advised that obligations of the CFC do not reduce the amount of an obligation held by the CFC on each quarterly measurement date even if the CFC obligation is held by the same U.S. person that borrowed under the U.S. obligation held by the CFC, but noted that if settling journal entries are made to reflect the actual extinguishment (or reduction) of the amount of the obligation held by (owed to) the CFC before the quarterly measurement date, then that reduction or extinguishment is taken into account. CCA 201811014 (3/16/18).
IRS announces end of Offshore Voluntary Disclosure Program
Secs. 6901(a)(1) and (2) not generally applicable to trust fund recovery penalty
The Office of Chief Counsel received a question about the correct reading of Secs. 6901(a)(1) and (2) with respect to the trust fund recovery penalty (TFRP) and advised that employment taxes are contained in Subtitle C, not Subtitle A or Subtitle B, and that the TFRP is an assessable penalty under Subtitle F and, under Sec. 7501, the TFRP is assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as the underlying tax. According to the Chief Counsel’s Office, since the TFRP is not a tax under Subtitle A or B, in the absence of the liquidation of a partnership or corporation, or a reorganization, Sec. 6901, which addresses transferred assets, will not apply. CCA 201811015 (3/16/18).
Situations in which suspensions of the collection statute expiration date under Secs. 6503(a) and 6331(k) could simultaneously apply are unlikely
The Office of Chief Counsel was asked to opine about a situation in which suspensions of the collection statute expiration date (CSED) under Secs. 6503(a) and 6331(k) could apply simultaneously. The Chief Counsel’s Office replied that this would be an unusual factual scenario and that an unnamed district court case cited by the person requesting the opinion of the Chief Counsel’s Office interprets Sec. 6503(a) overbroadly, and the Chief Counsel’s Office said it can generally be assumed that Sec. 6503(a) will almost never suspend the CSED beyond the suspension already provided in Sec. 6331(k). CCA 201811013 (3/16/18).
IRS issues April 2018 applicable federal rates
The IRS issued a ruling that prescribes the applicable federal rates for April 2018. This guidance provides various prescribed rates for federal income tax purposes, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate, and are determined as prescribed by Sec. 1274. Rev. Rul. 2018-09 (3/16/18).
Businesses affected by winter storms get 5 extra days to file extensions
The IRS announced that it is granting five extra days to certain partnerships and S corporations, whose returns are due March 15, 2018, to request automatic six-month extensions. The extension to March 20 applies to business taxpayers affected by the two recent winter storms, Quinn and Skylar, that primarily hit the Northeast and Mid-Atlantic United States. IR-2018-50 (3/13/18) (see related news story).